Hiring your first employee in Alabama

What do you have to register for before your first payroll?

One My Alabama Taxes registration opens your withholding account and your sales and use tax account in the same session, and the Department of Revenue charges nothing for it. That is where the convenience stops. Unemployment insurance is a separate registration with the Alabama Department of Workforce, workers compensation is not a state account at all because you buy the policy from a private insurer, and if your employee works inside a city that levies an occupational tax you have a fourth registration with that city. The Department of Revenue says so in its own employer booklet: state unemployment tax and local occupational taxes are not administered by it, and for the occupational tax you must contact the city or county administering it. Budget for three or four separate agencies, not one.

Does Alabama require income tax withholding?

Yes. You register with the Alabama Department of Revenue, before your first alabama payroll, online at my alabama taxes. expect three to five days for the account number to come back..

Alabama publishes no grace period in days. The rule is simply that employers and withholding agents must register by completing a withholding tax application online, and an out-of-state employer must withhold on wages to the extent they are earned in Alabama whether the employee lives there or not, so one remote Alabama worker creates the account. Two mechanics decide your calendar. Filing is quarterly on Form A-1 by the last day of the month after quarter end, but you flip to monthly Form A-6 filing, due by the 15th, for any month in the first or second month of a quarter in which you withheld more than $1,000. Separately, any single payment of $750 or more must be filed and paid electronically. The annual reconciliation, Form A-3 with the W-2s, is due by the last day of January, and an active account with no withholding still has to file a zero A-3. The bigger trap for a multi-state employer is the one Alabama does not handle for you: more than twenty Alabama municipalities levy an occupational tax on wages earned inside the city limits, the employer withholds it and remits it straight to that city on the city's own form and schedule, and it attaches to where the work is physically performed rather than where the employee lives or where you are registered. Birmingham is 1 percent and Opelika is 1.5 percent, on their own city forms. There is no state list and no state account that covers it, so check the ordinance of every city your Alabama people actually work in.

What unemployment insurance does Alabama charge a new employer?

A new Alabama employer pays 2.7% on the first $8,000 each employee earns, so roughly $216 per employee in the first year. A newly liable Alabama employer pays the entry rate of 2.70 percent on the first $8,000 of each employee's wages, and stays there until it has at least two complete years of measurable unemployment experience. For 2026 that 2.70 percent is the whole bill: the department's own annual report states that the 2026 rate schedule is the A schedule and shared cost remains at 0.00 percent, so there is no add-on this year. Experience-rated employers run 0.20 to 6.80 percent, a range that already includes the 0.06 percent Employment Security Enhancement Assessment, and no credit for the ESA may be taken on the federal Form 940. You become liable once you pay $1,500 in wages in any calendar quarter or have one or more workers in 20 different weeks of the current or preceding year, which a single part-timer can cross. Note also that the agency changed name and shape: the Alabama Workforce Transformation Act merged part of the Department of Commerce with the Department of Labor to create the Alabama Department of Workforce, and the old adol.alabama.gov pages are still live alongside the new workforce.alabama.gov ones. Rate notices are no longer mailed. The 2026 notices went up on the website on 16 December 2025 and you have to go and get yours.

Do you need workers compensation insurance in Alabama?

Yes, once you reach 5 employees. Below that Alabama does not require it, but read the counting rules before assuming you are under the line, because who counts is rarely obvious.

• any employer that regularly employs five or more employees in any one business, counting full-time and part-time people and officers of a corporation
• any employer in the business of constructing or assisting on-site in the construction of new single-family detached residential dwellings, which is covered regardless of how few employees it has

This is the field where Alabama differs most from the states around it. Most states start coverage at the first, second or third employee. Alabama exempts you until you regularly employ five, and the department states it plainly: an employer regularly employing fewer than five, full-time or part-time and including officers of a corporation, is not required to carry coverage. Two counting rules decide whether you are actually under the line. Part-timers count the same as full-timers, and corporate officers count as employees, so a three-owner company with two part-time staff is at five and is covered. The exception that catches builders is that the under-five exemption does not apply at all to the business of constructing or assisting on-site in the construction of new single-family detached homes, which is covered from the first employee. Employers of domestic workers, farm labourers and casual employees, and municipalities under 2,000 people, are also outside the requirement and may elect in. Being exempt is not the same as being safe: without coverage you also lose the exclusive-remedy protection that workers compensation buys, so an injured employee sues you in tort instead. The department's page does not publish the penalty for an employer that should have had coverage and did not, and the Code of Alabama could not be read on an official state page for this record, so no penalty figure is quoted here.

There is no opt-out for an employer at or above five. Below five, an employer is exempt by default and elects into coverage by filing written notice with the department on Form WC-14. An employer that had elected in and later withdraws must notify each employee of the withdrawal in writing and post a conspicuous notice telling employees and applicants that workers compensation coverage is not available.

How quickly must you report a new hire in Alabama?

Within 7 days of the employee's date of hire or reemployment. Reports go to the Alabama Department of Workforce, New Hire Program.

Seven days is one of the tightest windows in the country, so if you are used to a 20 day habit from another state this is the one that will catch you out. All employers must report every newly hired or recalled employee, including temporary, seasonal and part-time staff, and a returning worker counts as a new hire if they were separated for at least 60 consecutive days. The penalty is small, up to $25 per violation, but the filing is easy to miss because it goes to a portal of its own and nothing in your withholding or unemployment registration triggers it. Employers filing electronically may batch and transmit twice a month instead, not less than 12 nor more than 16 days apart. The portal itself moved in December 2025 when the department relaunched it, so a bookmarked old link may not work.

Does Alabama have paid family leave or state disability insurance?

No. Alabama runs no state paid family leave fund and no state disability insurance, so there is no payroll deduction of that kind and no extra account to open.

Alabama has no state disability insurance and no state paid family and medical leave programme, so there is no payroll deduction of this kind and nothing extra to register for. The Department of Revenue's 2026 employer booklet names only two other payroll taxes that sit outside its own withholding tax, state unemployment tax and local occupational taxes, and neither is a leave or disability levy. If you are used to running payroll in California, Delaware or New York, this is a line item you simply will not have here.

Do you need a sales tax permit in Alabama?

The licence is free. The department states that its business tax online registration system is provided at no charge to the registrant, and one session at My Alabama Taxes can open sales tax, sellers use tax, simplified sellers use tax, rental tax, lodgings tax and income tax withholding together. Allow three to five days for the account number. The detail that quietly kills accounts is the renewal. Alabama tax account licences for sales tax, rental tax, sellers use tax, lodgings tax, utility gross receipts tax and simplified sellers use tax must be renewed every November and December through the Tasks page of your My Alabama Taxes account. Miss the window and the licence is cancelled, which also means you can no longer use it to buy inventory tax free for resale. Nothing about that is obvious from the original registration, and it is an easy thing for an out-of-state operator to never notice.

Security deposits. Nothing is collected at registration and the department's registration and annual renewal pages set no bond or deposit as a condition of the licence, so there is no open-ended deposit demand of the kind California and Texas can make.

Does a marketplace like Amazon or Etsy handle the tax for you?

Since 1 January 2019 a marketplace facilitator with $250,000 or more of sales into Alabama through its marketplace must either register and collect simplified sellers use tax on those sales or report the sales and send customer notifications instead. Alabama's version has an unusual sweetener: simplified sellers use tax is a flat 8 percent on every sale into the state regardless of the local rate, and collecting it relieves the facilitator, the marketplace seller and the buyer of any further state or local sales and use tax, with no county or city rates to look up. An in-state seller whose sales all run through a participating marketplace does not have to register for a sales or use tax account at all, though it should still obtain an exemption certificate to buy inventory tax free. The catch is the same as everywhere else. Sales through your own website or any other channel are yours to register for and remit, and if the platform elects to report rather than collect, the tax comes back to you as the seller.

If your sales drop, when can you stop collecting?

Alabama publishes no trailing nexus rule and no procedure for a remote seller to stop collecting, so this is recorded as unknown rather than guessed. What the rule does say builds in a lag of its own: the collection duty applies when retail sales into the state exceed $250,000 per year based on the previous calendar year's sales. Read literally, the year you cross the line sets your obligation for the following calendar year, so a year of collapsed sales does not release you until the year after that. Because the department has published no wind-down procedure and simplified sellers use tax participants file monthly returns, contact the Department of Revenue before you stop filing rather than going quiet.

Does Alabama charge a tax on revenue rather than profit?

Alabama levies no state gross receipts or commerce tax, but do not read that as no local cost. Three separate local or state-level charges sit outside the sales tax and outside payroll. First, cities license businesses under Ala. Code 11-51-90 and the licence is frequently computed on gross receipts, owed separately in each city where you have a place of business, so no single rate can be quoted here. Second, a state and county business privilege licence is bought through the county probate office rather than online with the Department of Revenue. Third, and separate from all of that, Alabama levies a business privilege tax on net worth rather than receipts, at $0.25 to $1.75 per $1,000 depending on apportioned federal taxable income. On the privilege tax the department's own tax-type page is behind the law: it still describes the $100 minimum reduced to $50 for years after 31 December 2022, but the legislature finished the phase-out, and for taxable years beginning after 31 December 2023 an entity whose privilege tax computes to $100 or less owes nothing and is not required to file the return at all. Believe the later change, not the tax-type page. No rate range or threshold is recorded in the numeric fields because the municipal licence varies by city and by business classification and no state page publishes a schedule.

Do you have to register your out-of-state company in Alabama?

$150 for both, whether you file on paper or online. Expedited paper processing, roughly three business days, is $250 instead. Add the name reservation you must obtain first, $25 by mail or $28 online. The published fee schedule carrying these amounts was last revised 23 August 2023.

Foreign qualification means registering an entity you formed elsewhere so it can transact business in Alabama, which is a different filing from forming an Alabama entity. Two sequencing details cost people time. You must first obtain a Certificate of Name Reservation from the Secretary of State and attach it to the application, so this is a two-filing process rather than one. And the registered agent must be a person or company physically located in Alabama, with a street address rather than a PO box. Filings go to the Secretary of State directly, not to a county probate judge. The penalty for getting the order wrong is real: transacting business in Alabama before registering carries a late filing penalty of $150 for each year you were unregistered, on top of the ordinary fee. On the other side, Alabama is lighter than most afterwards, because corporations authorised to transact business here no longer file an annual report with the Secretary of State, and since the 2024 tax year an entity whose business privilege tax computes to $100 or less files no privilege tax return either.

Where these figures come from

Every number on this page was read on Alabama's own agency pages, its statute, or a current-year official form, and this record was last reviewed on 2026-09-08. Where a state's explainer page disagreed with its statute or its current form, we followed the statute or the form and said so in the relevant section, because a state's consumer-facing pages are often the last thing updated when a figure changes.

Anything we could not confirm on a primary source is left blank rather than estimated. A missing figure on this page means we could not verify it, not that it is zero.

This is general information, not legal or tax advice. Rules change and your circumstances matter. Confirm anything you are about to act on with the agency named beside it.